Question

EX 7-5 Perpetual inventory using LIFO OBJ. 2, 3 Beginning inventory, purchases, and sales data for prepaid cell phones for May are as follows: Inventory Purchases Sales May 1 1,550 units at $44 May 10 720 units at $45 May 12 1,200 units 20 1,200 units at $48 14 830 units 31 1,000 units a. Assuming that the perpetual inventory system is used, costing by the LIFO method, determine the cost of merchandise sold for each sale and the inventory balance after each sale, presenting the data in the form illustrated in Exhibit 4. b. Based upon the preceding data, would you expect the inventory to be higher or lower using the first-in, first-out method?

Answer 1

Solution

A. Assuming that the perpetual inventory system is used, costing by the LIFO method, determine the cost of merchandise sold for each sale and the inventory balance after each sale.

Date	Inventory ($)	Purchases ($)	Sales ($)	Balance ($)
May 1-	1550 units @ $44 =68,200	May 10-720 units 720 units@ $45 =32,400	May 12- 1,200 units 720@45=32400 480@44=21120	1070 @44=47080
May 14	1070 @44=47080		830@44=36520	240@44=10560
May 20	240@44=10560	1200@48=57600		240@44=10560 1200@48=57600
May 31	240@44=10560 1200@48=57600		1000@48=48000	240@44=10560 200@48=9600
				20160 (10560+9600)

b. Based upon the preceding data, would you expect the inventory to be higher or lower using the first-in, first-out method

Table showing FIFO ( First-in, first-out method)

Date	Inventory ($)	Purchases ($)	Sales ($)	Balance ($)
May 1-	1550 units @ $44 =68,200	May 10 =720 units 720 units @ $45 =32,400	May 12- 1,200 units 1200@44=52800	720@45=32,400 350@44=15400
May 14	720@45=32,400 350@44=15400		350@44=15400 480@45=21600	240@45=10800
May 20	240@45=10800	1200@48=57600		240@45=10800 1200@48=57600
May 31	240@45=10800 1200@48=57600		240@45=108000 760@48=36480	440@48=21120
				21120

Inventory cost would be higher in FIFO method

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